Stocks fall as JPMorgan warning helps drive down banks

UPDATE: 10:25 a.m.

NEW YORK >> Stocks closed lower on Wall Street today and banks were among the largest weights in the market following weak earnings and a warning from JPMorgan Chase.

The S&P 500 fell 0.3% and the Dow Jones Industrial Average lost 0.5%. The Nasdaq ended little changed.

JPMorgan Chase announced a sharp drop in its profits for its last quarter, below forecasts. CEO Jamie Dimon reaffirmed a pessimistic view of the economy.

Wholesale trade inflation rose 11.3% in June from a year earlier. This follows a worrying report on Wednesday showing prices at the consumer level remain high.

FRONT COVER

NEW YORK >> Stocks fell sharply in afternoon trading on Wall Street today and banks were among the biggest weights in the market following weak earnings and a warning from JPMorgan Chase.

The S&P 500 fell 0.4% at 2:55 p.m. ET. More than 75% of companies in the benchmark were in the red. The Dow Jones Industrial Average fell 194 points, or 0.6%, to 30,577 and the Nasdaq fell 0.1%.

Banks suffered some of the largest losses and weighed heavily on the market. JPMorgan Chase fell 3.7% after reporting a sharp decline in earnings for its latest quarter, below forecasts. CEO Jamie Dimon stuck to his warning earlier this summer that a “hurricane” was heading for the economy.

“I haven’t changed my mind at all,” he said in a conference call with reporters. “The negatives that I pointed out, the risks in the future, are still the same risks. They are closer than they were before.

Inflation and the Federal Reserve’s fight against it remain major concerns for Wall Street. Wholesale trade inflation rose 11.3% in June from a year earlier. It’s the latest painful reminder that inflation is on the way, after a report on Wednesday showed consumer-level prices were 9.1% higher last month than a year earlier.

Widespread inflation has weighed on businesses and consumers for months. More importantly for Wall Street, it prompted an aggressive U-turn from the Fed on its interest rate policy. The central bank is currently raising rates in a bid to slow economic growth and calm inflation, but it has raised fears it could go too far and actually trigger a recession.

Shares of small companies fell more than the broader market, another sign that investors are worried about economic growth. The Russell 2000 fell 1.2%.

Several big tech companies moved forward and helped offset some of the losses elsewhere in the market. Apple rose 2%.

The 10-year Treasury yield, which affects mortgage rates, rose to 2.96% from 2.90% at the end of the day. It remains below the two-year Treasury note, which is at 3.12%. It’s a relatively rare occurrence, and some investors see it as a worrying signal of a potential recession.

The Fed has already hiked rates three times this year and traders are increasingly expecting a monstrous one percentage point rate hike at the next central bank meeting in two weeks. Traders are betting on an 83% chance of a full point rise, up from zero a month ago, according to CME Group.

Christopher Waller, a member of the Federal Reserve Board of Governors, said today that he would be willing to back such a move if upcoming economic data points to robust consumer spending.

“We started this week thinking the Fed would make a big enough move to show it had more control” in the fight against inflation, said Greg Bassuk, CEO of AXS Investments. “A substantial Fed rate hike alone does not rule out the possibility of a soft landing, but the window is shrinking.”

Investors are growing increasingly worried as retail sales and other data point to an already slowing economy. This could make it harder for the Fed to make a so-called “soft landing,” where it raises rates just enough to cool inflation without causing a recession.

Worries over Fed rate hikes prompted Bank of America to forecast a mild recession hitting the economy in the second half and more pain for traders. The benchmark S&P 500 index has already crashed into a bear market, down 20% from its most recent peak in January, and likely hasn’t bottomed yet, the bank said.

Investors will have a clearer picture in the coming weeks of the impact of inflation on businesses. Several other banks are on deck to release their results on Friday, including Citigroup and Wells Fargo, as well as insurer UnitedHealth Group.

Garland K. Long